US overtakes Russia as top gas producer

The US, with its big gas shale resources, has surpassed Russia as the world's leading gas producer. The dethroned gas tsar's output fell 12 per cent to 582 billion cubic metres last year, the Russian energy ministry said this week. Meanwhile, the US government's Energy Information Administration (EIA) said US gas production for the year probably rose 3.7 per cent to 624 billion cu metres, its highest level of the decade.

"Minimal hurricane disruptions and significant growth in production from onshore shale basins have contributed to the increase in domestic supply," the EIA said. Russia remains the world's biggest gas exporter, but its heavy reliance on European markets hurt the country last year, when Europe's gas demand fell sharply because of the recession. Domestic demand for Russian gas also contracted as the county's industrial output declined 11.5 per cent.

In the US, by contrast, lower gas prices last year than in 2008 encouraged the power sector to absorb the booming output from newly developed gas shale deposits. In normal years, the US relies on coal-fired power plants to supply most of its so-called baseload electricity demand, topping off the nation's power supply with gas-fuelled generation during peak demand periods. But when gas is cheap compared with coal, as happened last year, some of the baseload generation shifts to gas-fired plants.

Compared with the US, where gas trades on an open market, gas prices in Europe remained relatively high, discouraging fuel-switching. Most Russian gas sold to Europe is subject to long-term price agreements linked to crude prices. That, as much as slow economic recovery, could mean several more years of depressed European gas demand. The EU is also actively seeking alternatives to Russian gas imports due to energy security concerns that intensified in January last year after Gazprom, the Russian gas export monopoly, cut off 20 per cent of Europe's supply over a dispute with the gas transit state, Ukraine.

"It's inevitable that the US will continue to be a larger producer than Russia in the next few years," Noel Tomnay, the head of global gas at the Scottish consulting firm Wood Mackenzie, told The Moscow Times. Andrew Neff, an energy analyst with IHS Global Insight, predicted US gas producers would out-pump their Russian counterparts until at least 2015. It would take time for Gazprom to develop new markets, he said. "It's not going to happen with Asia in the short term, and not going to happen in North America because of shale gas in the next five to 10 years."

Nevertheless, Moscow signed deals with China last year for US$25 billion (Dh91.82bn) of loans to help with oil and gas development, and revived talks over a proposed gas pipeline to China. Russia also started exporting liquefied natural gas (LNG) last year from Sakhalin Island, off its Pacific coast, mainly to Japan and South Korea. Last summer, Kuwait also imported a Russian LNG cargo. @Email:[e-mail]